Posts Tagged ‘British pound’

Notes From Underground: Quick Note on the BOE and Friday’s Jobs Report

November 2, 2017

Today, the BOE raised interest rates (as expected). But the market deemed it to be dovish and the EUR/GBP rallied 2 percent as the British pound tumbled and the euro strengthened versus the pound and dollar. On Wednesday I cautioned that the EUR/GBP failed to hold below its 200-day moving average and this provided a good technical level. As expected, the FOOTSIE index rallied more than 1 percent as investors appreciated a weaker POUND as beneficial to British corporations regardless of Brexit. The initial release of the statement revealed a 7-2 vote, which on first read was not the expected 6-3 vote so could have been a bit hawkish. But the eight paragraph statement clarified the soft-side of Governor Carney:

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Notes From Underground: The More Things Stay the Same, the More the Headlines Change

September 14, 2017

The BOE held true to consensus and kept rates unchanged and maintained its balance sheet at 435 billion pounds, with the votes were exactly the same as the August meeting. The POUND fell on the initial headlines but the algos reversed as it was reported that there MAY be a need to raise rates due to the lessening slack in the economy. Governor Carney is reading from the Mario Draghi book, “Rules For Central Bankers.” He cited Brexit as the cause of a supply shortage because of reduced investment into the U.K. Wow! This is nonsense as stagnant wages are limiting domestic demand but Carney insists the negative fallout is constraining supply. With interest rates at record lows British firms could borrow all the cash they need to finance expansion. Carney needs BREXIT as the cover for his massive error. Remember when he panicked and cut rates following the BREXIT vote?

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Notes From Underground: The Bank of England Reveals Its Decision

September 13, 2017

Thursday, the Bank of England will reveal its most recent interest rate decision. The consensus is for the BOE to leave its overnight interest rate at 0.25%. There is interest in this meeting because the British inflation data has risen and is now above Governor Mark Carney’s desired target. The most recent inflation data released on Tuesday sent GILT yields higher and put a strong bid to the British pound, pushing it to levels against the U.S. dollar unseen since the BREXIT vote. The EURO even lost ground to the British currency as the market NOW ASSUMES that the BOE will have to move to raise rates in response to rising price pressures.

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Notes From Underground: Unemployment Friday, the Data On Which We’re Dependent?

August 3, 2017

The first Friday of August brings the BLS jobs report. Does it matter for the markets?In my opinion, not unless this number is above 300,000 or the rate falls below 4.1%. Average hourly earnings (AHE) is the critical variable of the economic story. The FOMC and others have been adamant that it is the fear of wage inflation that drives the discussion about either an interest rate increase or a “relatively soon” beginning of quantitative tightening. For our preparation, the market estimate is for a nonfarm payroll number of 170,000, an unemployment rate of 4.4% and, more importantly, a 0.3% increase in AHE. As an aside, a number that Art Cashin likes is the hours worked per week, which is expected to remain at 34.5. The hours worked are examined because even if new jobs aren’t created a strong economy will get employers to seek longer hours for current workers.

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Notes From Underground: Is the Yield Curve Taunting the Fed?

June 6, 2017

There were many responses to last night’s post regarding one of my favorite topics: the yield curve. The airwaves have been filled with opinions about the impact of the 2/10 curve on bank stocks and other financial asset valuations. Long-time readers know that I often note the significance of the shape of the curve for hinting at possible investment opportunities. Last year the 2/10 curve FLATTENED (a relative term) to long-term support levels at 74.8 basis points and then steepened out to about 150 basis points as the market feared a Trump inflation scenario.

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Notes From Underground: The Rallying Cry Remains, “Pepper Spray Davos”

January 16, 2017

We at Notes From Underground have published more than 1,000 posts during the last seven years. I have voiced my displeasure about the annual gathering in Davos for the past five years (last year’s Davos post is below). My battle cry was (ans continues to be): PEPPER SPRAY DAVOS, a response to the heinous police overreaction to the pepper spraying of University of California–Davis students in November 2011. The police POURED pepper spray onto student protesters, a contemptible act of police brutality. I thought if the UC–Davis students were subjected to such a police response for blocking a sidewalk the crony capitalists of global monopolies are surely worthy of such a contemptuous action. The corporate chieftains and their political sycophants, who exchange “insider views” for large speaking fees (and of course a hope to secure a job after leaving political office), have badly damaged the world.

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Notes From Underground: Global Politics Will Keep Volatility Elevated

October 10, 2016

Increased volatility is not debatable. It will be the outcome of the uneasiness of global politics. It seems that the present state of affairs reflects the vast chasm between those who have benefited from GLOBALIZATION and those who have seen their lives and incomes being disrupted by a world experiencing dynamic change. Brexit was a vote of the nationalists versus the Davos crowd, or those seeking the comfort of the world they know versus those who have profited mightily from the first mover advantage of being prepared for the post Berlin-wall global economy. The central banks’ efforts to prevent a massive liquidation of global assets and harm that would have befallen the global economy as left many participants in a state of financial repression.

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Notes From Underground: Governor Carney Reveals the Full Monty

August 4, 2016

Santelli Exchange: August 4, 2016(Click on the image to watch me and Rick discuss why a dart board makes a better forecaster than central bankers.)

This is a brief note attached to a spot I did today with CNBC’s Rick Santelli where we discussed the Bank of England’s decision in full. To my great surprise Mark Carney delivered monetary policy on three fronts: 1. Cut the benchmark rate; 2. Began a new round of QE with purchases of 60 billion pounds of Treasury debt with a 10 billion corporate bond buy kicker; and 3. An enhanced Facility Lending Scheme now labeled as Long-Term Funding Scheme (TFS), which is an imitation of the ECB’s TLTRO, which is meant to get the banks lending the additional BOE-provided liquidity. The British domestic banks will incur penalties if they fail to pass the cheap credit into the financial system. My view still stands. The POWER OF THE TFS IS AMPLE STIMULUS AND THE CARNEY-LED MPC SHOULD HAVE HELD THE RATE CUT AND QE IN RESERVE.

The British Pound dropped 1.5% in response to the aggressive BOE action, the Footsie equity index was up almost 2% and the British gilts rallied as the yields on the long-end of the curve dropped 16 basis points. Carney followed his central bankers down the rabbit hole of “got to do something” for there is a supply shock. My criticism is that the BOE governor acted too quickly and should have let markets continued to seek out the real effects of the Brexit vote. Why are central bankers so terrified of the signals that markets provide about the economy? I will focus on the British pound and the GILTS as a weighing mechanism of market sentiment as we move forward. There is still much to digest concerning Brexit and Prime Minister May has shown herself to be flexible in confronting the EU.

***Tomorrow’s unemployment data is expected to reveal nonfarm payrolls of around 175,000 with a 0.2% increase in average hourly earnings and a jobless rate of 4.8%. Be patient as revisions to last month’s large increase may impact any strong number. If the number is above 280,000 there will be talk of September’s FOMC meeting being in play for a rate rise but after today’s BOE action the FED will be cautious because if Carney fears a large negative impact or supply shock from Brexit Janet Yellen will be loath to raise rates in the face of global headwinds.

Patience is advised in response to a summer market having to decode a great deal of economic nuance. But the most interesting asset class tomorrow will be the U.S. bonds and its reaction to very strong data. Today the U.S. Treasuries rallied strongly on the BOE action, confirming again that global bond markets are all connected by relative value trades. A large nonfarm payroll will test the durability of relative value and most certainly lead to a flattening of the yield curves.

 

 

Notes From Underground: The Low Yield of Well-Heeled Boys (Trafficking In Central Bank Counterfactuals)

August 3, 2016

Tomorrow the key economic release will be the Bank of England’s interest rate decision. The market is 98% certain there will be at least a 25 basis point rate cut to 0.25%. A majority of analysts also believe that the BOE will increase its asset purchases (QE) from its long, stable level of 375 billion pounds. I DON’T THINK THE BOE IS GOING TO BE AGGRESSIVE AND WILL WAIT TO SEE FURTHER EVIDENCE OF ECONOMIC DATA TO CONFIRM A SOFTENING IN ACTIVITY IS UNDERWAY. A rate cut will accomplish NOTHING except a slight drop in the currency. The recent economic data has been soft but after all the vituperative speech and dire predictions after the vote to LEAVE the European Union, the economy was expected to pause until the market could sort out the hyperbole of negativity.

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Notes From Underground: Yet Again, It’s a Ball Of Confusion

August 2, 2016

Was today risk on or risk off? The U.S. dollar continued its recent weakness as the world’s major currencies all rallied against the “safe haven” greenback. The Reserve Bank of Australia cut its interest rate last night but even the Aussie dollar gained against its sister fiat currency. Global equity markets were down as the Japanese Nikkei was weak as the inverse correlated Yen was higher by one-and-a-half percent. Yes, equity markets failed to send the U.S. currency higher.

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